RAFAH, Gaza Strip, Aug 17 (Nidal al-Mughrabi/Reuters) - Jamal al-Shatli scours Gaza's scruffy border area looking for a job where he once worked in the warren of tunnels used by smugglers to outwit Israeli controls and sneak in goods from neighbouring Egypt.

While Israeli air strikes and Egyptian bombs hurt the once-flourishing trade, they failed to close it down. But Israel's decision to let imports flow more freely to Gaza has put many tunnels out of business and many workers out of a job.

I jumped from one tunnel shaft to another looking for a job but they all turned me down, said Shatli, a father of three.

He used to earn up to 120 shekels a day ($32) down the tunnel shafts, making him one of the best-paid workers in the coastal Palestinian territory, home to 1.5 million people.

Quite literally an underground economy, the tunnel business flourished after the Islamist group Hamas took control of Gaza in 2007, with Israel escalating its restrictions and preventing pretty much anything bar basic aid from getting in.

Egypt imposed its own tight limitations, meaning that the only way for entrepreneurial Gazans to bring in anything from cars to chocolate was to sink tunnels under the border and set up smuggling networks, which became emblematic of local life.

At one stage an estimated 2,500-3,000 tunnels snaked their way under the border line, but the network was severely damaged by Israeli air strikes during a three-week offensive in late 2008 launched to respond to Palestinian rocket attacks.

Locals say there are now just 50 operational tunnels, with only 10 working at any one time and dozens of others mothballed because Palestinian merchants are more willing to buy their goods from Israel rather than from the smugglers.

STEEL AND CEMENT

Some young men slept in the shade in the once bustling area, waiting for a call to work, while a lucky few were busy pulling out a covert consignment of steel for construction work.

Tunnel workers only bring stuff that is still banned by Israel, especially steel and cement, said Mohammed Abdel-Qader, who has worked in the tunnels for the past two years.

Israel now allows more food, different kinds of it, juice, electrical equipment and even fridges, therefore merchants shifted their business to the old regular way and abandoned tunnels, he added.

Israel relaxed its restrictions in June in the wake of its raid to halt a blockade-running flotilla from reaching Gaza in a military operation that killed nine activists and drew widespread international condemnation.

It has maintained its ban on some 3,000 items, such as building materials, arguing that these could be used by Hamas, which refuses to recognize Israel, to carry out rocket attacks.

But anything not specifically barred can now be brought in.

I sleep, then I wake up, eat and sleep. These days it is Ramadan, I wake up only to sleep again with my phone next to me awaiting that call, said 23-year-old Bassam, a former tunnel hand.

He has joined the mass ranks of unemployed in a territory with a jobless rate put at up to 60 percent.

GUARANTEED GOODS ON SHELVES

Inside Abu Goma's store in Gaza, new Israeli-imported electrical tools and equipment take pride of place on the shelves, with three-year warranties on offer.

Now I can guarantee to repair and replace items. Goods brought through tunnels cannot be guaranteed, he said.

Better still, many of the goods brought through Israeli crossings are cheaper than those smuggled from Egypt. An Israeli-imported DVD player sells for 190 shekels ($50) while an Egyptian device, of lower quality, costs 270 shekels ($70).

Although many of the tunnel workers bemoan their new reality, they also admit their trade was hard and dangerous.

Dozens of Gazans have died inside tunnels that caved in or collapsed because of Israeli and Egyptian raids.

People die, they die of hunger too, said Abdel-Qader, who needed the tunnel work to help support his 14-member family squeezed into a shabby, three-room apartment.

But Bassam said fear of deaths in Israeli air strikes or Egyptian security sweeps had persuaded many of his colleagues they were better out of the tunnel business.

Egyptian police used to warn tunnel owners before they detonated explosives. They used to give us several hours to flee, but now they blow it all of a sudden and many people have died that way, Bassam said. (Editing by Crispian Balmer and Jon Hemming)